Planning for Enterprise Analysis

May in the Midwest means long stretches of time involving repetitive work — long hours in the tractor, behind a tiller, on a planter, or on hands and knees in the soil.

As the hours pass, my mind often drifts to ideas for making my operation more efficient. If you are a relatively new farmer, like I am, perhaps you also feel that you have too much going on; too many experiments or enterprises underway. We’ve been so enthusiastic (and perhaps naive) about our farming exploits we want to try everything, right away.

And so, after five or so years there’s a little of this and a little of that- ewes bringing up lambs for meat, broilers and turkeys on grass to be butchered and sold, a small flock of hens producing eggs. There’s always too much to do, and so little money. How can I succeed, how can this all coalesce into a happy and workable life?

One valuable tool that I have been introduced to is the enterprise analysis. In an enterprise analysis you look at the incomes and expenses of one particular piece of your farming operation–for instance the broilers—throughout the production year, and determine if a profit is being made.

Now, although it is a pretty simple exercise, analysis like this is only as good as the numbers that are used to create it. And that is where my thinking is going this sunny May afternoon as I’m digging quackgrass out of the edges of garden beds. What information will I need to know in the fall in order to assess if the sheep or the broilers or the turkeys are making money?

First I need to collect all of the costs to produce my “crop.” For the poultry one thing I’ll need to track is how much feed I buy, and how much I actually feed to the broilers. I feed the turkeys out of the same bin, and so if I am committed to figuring the profit for either or both I will need to either weigh or estimate how much feed each day or week goes to each species. When I buy bedding for the brooder I’ll want to note if it is for broilers or turkeys, and when I drive to the post office to pick up the chicks or poults, or meet one of my customers in town at the end of the season, I’ll want to note which enterprise the mileage expense should be allocated to.

So, there is some tracking done when purchases are made (sheep mineral at the farm store, for instance), and some that needs to be done on the farm (weighing buckets of feed so I can split costs between broilers and turkeys). As I pull quackgrass I think about everything I expect to need this season for each enterprise, and what I might need to do to track it. I will want to keep track of labor for each enterprise, and so will keep a notebook handy for this. If I pay close attention for a few days of everyday chores (5 minutes to feed hens and collect eggs, 10 minutes to feed broilers and move two pens)I can do a weekly estimate of regular time, and then need only to write down times that are not routine, such as cleaning the brooder, moving animals, or butchering.

Since I use the computer program QuickBooks to track my farm financials I have an easy way to financially separate the enterprises every time I make a purchase or sell a product. I use the “class” function and set up different classes for broilers, turkeys, sheep and eggs. Each purchase or sale gets entered with the appropriate portion allocated to each class. Something like feed, which gets tracked and allocated after the purchase is made, will need to be updated at the end of the season. This is also how my labor allocations are done.

At the end of the season, once I have all my expenses and incomes tracked for the enterprises that I am monitoring, I will export or print off numbers by class from QuickBooks and create spreadsheets to add in labor and other factors that need to be split. By then subtracting expenses from income I can see if I am making money by raising broilers, turkeys or sheep. I can see where my largest profits are coming from, and even create some ratios to find out where I am getting the most profit per labor hour. I can make decisions about pricing, and if I want to entirely eliminate an enterprise that isn’t making my “income per hour” goal.

Next year when I am weeding quackgrass perhaps I’ll only be thinking of new systems for broilers and sheep, having decided it wasn’t profitable enough to raise turkeys and laying hens anymore.

Jody Padgham is the Financial Director for MOSES, and Editor of Fearless Farm Finances.